Housing Allowances Stateside to Jump 5 Percent

Basic Allowance for Housing (BAH) paid to service members living off base in the United States will rise an average of five percent in January to keep pace with local rental costs over the past year.

But senior defense officials are weighing whether this should be the last significant hike in housing allowances for a while as they struggle to keep personnel costs "in balance" with other needs as defense budgets fall.

The size of the BAH increase for individuals, as always, will vary by pay grade, dependency status and assignment area. For example, rates will climb an average of 14.9 percent in Mobile, Ala., highest among military housing areas, and drop an average of 7.7 percent in Sacramento, Calif.

Wide shifts will be over short distances too. Average BAH will leap 7.7 percent next month in Everett, Wash., while 90 miles away, in Bremerton, rates will fall an average of 5.6 percent.

Average BAQ will be cut in 60 of 360 military housing areas. Thanks to a rate protection feature, however, members already living amid falling rents will see no drop in their own monthly allowance. Rate declines will only apply to members moving into affected areas. The rate protection rule will help an estimated 250,000 BAH recipients in 2014.

The heft of the overall BAH increase could make some members more comfortable with the Obama’s administration’s decision to cap the Jan. 1 basic pay raise at 1 percent, versus 1.8 to match private sector wage growth. Rates will climb enough to cover not only average hikes in rent but in utilities and renters’ insurance for housing types tied to rank and family status, said Cheryl Anne Woehr, BAH program manager for the Department of Defense.

The BAH budget for 2014 is almost $20 billion. The average five percent pop means $75 to $80 more per month across the force, Woehr said.

Military leaders have been urging Congress for several years to slow compensation growth. For more than a decade, they have pushed to make working-age retirees pay more of their own health costs. This month Congress accepted the modest pay cap but rejected again plans to raise TRICARE fees, co-pays and deductibles for retirees and their families.

The president’s 2015 budget request, to be unveiled in February, is expected to call for another pay cap as well as higher TRICARE fees. It also might include an initiative to dampen housing allowances.

The Joint Chiefs and senior defense civilian signaled as much last summer in releasing a Strategic Choices and Management Review with options for absorbing up to $500 billion in across-the-board defense cuts over a decade, required under the sequestration mechanism Congress approved in 2011 to address the debt crisis. These cuts began last April.

The review identified $97 billion in compensation curbs to help preserve combat readiness if Congress provides no sequestration relief. Options include more pay caps, forcing military retirees working second careers to use civilian employer health insurance, ending the $1.4 billion commissary subsidy and dampening housing allowances.

If meant to frighten Congress, it had mixed results. Before adjourning this month, lawmakers passed a bipartisan budget deal that softened the effect of sequestration on defense by a total of $33 billion across 2014 and 2015. But they pay for this relief, in part, by capping annual cost-of-living adjusting (COLAs) for military retirees under age 62 at one percent below inflation, a move to save $6.3 billion over the first 10 years.

Sen. Carl Levin (D-Mich.), chairman of the Senate Armed Services Committee, has promised to review the COLA cap law in 2014, long before it is to first take effect in January 2016. Sens. Mark Warner (D-Va.) and Jeanne Shaheen (D-NH), already have drafted a bill that would replace the COLA caps with higher tax revenues by cracking down on American companies that use foreign tax havens to dodge higher U.S. taxes.

Army Gen. Martin Dempsey, chairman of the Joint Chiefs, has been working with senior enlisted advisors on compensation initiatives to cut almost $50 billion from military personnel accounts over the decade.

BAH director Woehr confirmed that BAH changes are being studied.

"Certainly, because BAH is such a large portion of our personnel costs, it is something that we’re looking at," Woehr said. "We do want to make sure that any changes that would be made to find cost savings don’t adversely impact the quality of life of our service members."

BAH rates for 2014 would not be impacted by ongoing "discussions" of possible changes, explained Navy Lt. Cmdr. Nate Christensen, a Department of Defense spokesman.

Fiscal 2015, added Woehr, "would be the earliest that any of these changes could happen."

Congress would have to approve changes to how housing allowances are set. More than a decade ago, when it replaced a less efficient housing pay formula with BAH, initial rates covered only about 80 percent of members’ actual rental costs. With defense budgets made flush for war, Congress committed to closing the BAH gap, and did so by 2005.

With the Iraq war ended, combat troops to leave Afghanistan by next December and defense budgets getting squeezed, BAH rates conceivably could begin to lose ground against local rents, officials conceded.

A third of BAH recipients today live in privatized housing built on or near military bases. Building owners and commercial landlords now count on annual BAH rate increases, just as service members do who draw their allowances in cash and rent or buy housing on the local economy. That could complicate any BAH rollback.

Service members living off base overseas get an Overseas Housing Allowance instead of BAH. OHA is based on what members actually pay in rent and is adjusted periodically as the dollar’s value shifts against local foreign currency. Overseas allowances are not adjusted in tandem with BAH.